Banking Regulation 2024 Comparisons

The Banking Law (Royal Decree 114/2000, as amended from time to time) is the primary banking legislation in Oman. The Central Bank of Oman (CBO) is the designated regulator of the banking sector. Pursuant to its powers under the Banking Law, the CBO has issued a number of regulations, circulars and directives, all of which, collectively with the Banking Law, regulate the banking sector in Oman.

Banks in Oman may also engage in various activities relating to the field of securities, which are regulated by the Capital Market Authority (CMA). The principal laws governing the provision of services relating to the field of securities include the Securities Law (Royal Decree 46/2022) and the Executive Regulations of the Capital Market Law (CMA Decision 1/2009) (the “Executive Regulations”). The Securities Law repealed the earlier Capital Market Law, however the Executive Regulations issued under the earlier Capital Market Law are still in force until such time as new regulations under the Securities Law have been issued.

The Banking Law envisages locally incorporated banks (to be Omani listed companies) as well as foreign banks incorporated in other jurisdictions that are licensed to establish a branch in Oman. Application for setting up a new bank in Oman (whether a local bank or the branch of a foreign bank) is a two-stage process.

Application Process - Stage 1

Stage 1 involves the sponsor submitting an application for the granting of a licence to establish the proposed bank in Oman. This entails submission to the CBO of various documents, which include, inter alia, the following:

• a completed application form for the banking licence;
• details of the applicant’s sponsors/shareholders;
• corporate documents of the parent entity (in the case of a foreign bank that is looking to establish a branch);
• a plan of operation which, in accordance with Article 53(a)(4) of the Banking Law, should include (without limitation) –
1. information concerning the geographical and commercial communities to be served by the proposed bank;
2. the specific banking activities to be undertaken; and
3. the need for a particular bank or banking business in the communities to be served;
• a pro forma balance sheet;
• payment of application fees for issuance of the banking licence in the sum of OMR6,000 for the head office and OMR600 for each branch; and
• a list of names of all members of senior management who will be employed in Oman, as well as their CVs.

The CBO then provides a written notification (“CBO Acknowledgement”) to the applicant in confirmation of the date on which the completed application (as deemed by the CBO) was received by the CBO to proceed with its consideration for the granting of the licence.

The CBO Board of Governors is required by the Banking Law (Article 54) to consider the application for a banking licence and confirm whether the application satisfies the conditions provided for in Articles 52 to 54 of the Banking Law and the commercial, financial and economic requirements of the Sultanate, and that the application satisfies the objectives of the Banking Law and any other matters provided for by the CBO Circulars (this being the “Preliminary Approval”).

The CBO Board of Governors must approve the application within a period not exceeding 120 days from the CBO Acknowledgement, if the application satisfies the conditions referred to in Article 54(b) of the Banking Law. If the CBO Board of Governors decide that the applicant has not satisfied the conditions set out in Article 54 (b), it will notify the applicant of its rejection of the application and the reasons for such rejection.

Application Process - Stage 2

Typically, the CBO includes a specified validity period in the Preliminary Approval within which the applicant must complete all the conditions/prerequisites flagged in the Preliminary Approval before the CBO will provide final approval and a banking licence to the bank. One of the key tasks during Stage 2 is for the applicant to complete its corporate structuring formalities, which include, incorporating the company (or registering the foreign branch) in Oman and completing all related formalities. As banks are required to be listed companies, the process of an Initial Public Offering must also be completed.

Other key tasks include leasing of premises where the bank proposes to undertake its banking business and obtaining all the necessary clearances from the municipality concerned and the Royal Oman Police. Once all the conditions set out in the Preliminary Approval have been fulfilled, the CBO will issue its final approval and a banking licence for the bank/branch to commence banking operations.

Types of Licence

The CBO will issue all banks a commercial banking licence which authorises the licensed bank to undertake all banking activities and functions within the meaning of “banking business” as defined in Article 5 of the Banking Law (with the exception of Islamic banking and investment banking activities, for which a separate special licence is required).

A separate Islamic banking licence issued by the CBO allows a bank to provide Islamic banking products and services to its customers within the regulatory regime of the Islamic Banking Regulatory Framework (IBRF) issued by the CBO.

With regards to investment banking, CBO Circular BM 720 and Regulation BM/REG/38/04/94 (“CBO Investment Banking Regulation”) provide a framework for regulating certain “investment banking” activities, as listed in the CBO Investment Banking Regulations, which may be undertaken by banks subject to obtaining an investment banking licence.

Article 4 of the CBO Investment Banking Regulations provides for “investment banking activities” to comprise the following, for which an investment banking licence will be required:

• Corporate finance – The financial advisory services relating to the public raising of capital on the Muscat Stock Exchange (MSX), loans, and M&A of, or by, publicly quoted companies. This includes the preparation of prospectuses relating to such activities.
• Project finance – The preparation of detailed plans, analyses and forecasts for the financing of projects and for raising capital on the basis of the forecasts through limited circulation of the prospectus to unconnected third parties.
• Investment brokerage and investment advisory services – The offer of brokerage services, in or from Oman, for the purchase and sale of securities on an agency basis and the offer of investment advisory service to clients for the following: (i) securities quoted on the MSX, and (ii) securities approved by the CBO.
• Investment management (discretionary) – The provision of a fully discretionary investment management service subject to a discretionary management agreement for the following: (i) securities quoted on the MSX, and (ii) securities approved by the CBO.
• Underwriting of securities –
1. lead underwriting: contracting with an issuer of stock or debt finance and guaranteeing the part or total placement of the issue, whether private or public, for a fee; or
2. sub-underwriting: contracting with a lead underwriter and guaranteeing the part placement of an issue, whether private or public debt or equity, for a fee.
• Custodian and fiduciary services – The acceptance and administration of securities in safekeeping, and the exercise of trustee functions for third parties.

In this respect, there is some overlap between activities that fall within the domain of “investment banking”, which is regulated by the CBO, and activities in the “field of securities”, which are regulated under the Securities Law by the CMA. The following activities, as set out in Article 21 of the Securities Law, require a licence from the CMA:

• intermediation (brokerage);
• market making;
• custodianship;
• asset management;
• margin financing; and
• investment banking.

Should there be any overlap between the CBO and CMA in respect of an activity which a licensed bank intends to undertake, the bank is required to obtain the necessary licences from both the CBO and CMA before undertaking such activities.

All local banks in Oman are required to be established as public listed companies (unless they have a specific exemption, pursuant to a Royal Decree). The Banking Law (Article 57) provides a number of restrictions on the transfer of shares in banks, as summarised below:

• prior approval from the CBO will, in each instance, be required to acquire more than 10% of the issued voting share capital of a bank;
• prior approval from the CBO will be required for a commercial company or other business entity holding 10% or more of the voting shares, or the equivalent thereof, of a licensed bank to merge into, or combine with, or effect a consolidation with, any other business entity; or to issue, authorise or record the transfer of any interest in itself in excess of 25% of its outstanding voting shares, or the equivalent thereof, to any person or any group of persons acting jointly or to a common purpose;
• additionally, the CBO has established the following limits on shareholdings by an individual or corporate entity and its related parties in a bank –
1. an individual shareholder together with related parties may hold up to 15% of the voting shares in a bank;
2. an incorporated body (other than a joint stock company) together with its related parties may hold up to 25% of the voting shares in a bank; and
3. a joint stock company or holding company, together with its related parties, may hold up to 35% of the voting shares in a bank (the CBO has in the past extended this definition to include foreign joint stock companies).

If a proposed transaction results in the merged entity acquiring more than 35% of the market share of the relevant business sector, then it will be necessary to secure a competition/merger approval from the Ministry of Commerce, Industry and Investment Promotion, which regulates competition matters under the Competition Law (Royal Decree 67/2014).

The Takeover Code

As most banks in Oman are Omani listed companies, any acquisition of more than 25% of the shares of a listed company would trigger the Omani Takeover Code (CMA Decision 2/2019). In terms of the letter of law, the Takeover Code provides that any acquisition of more than 25% of the shares of a listed company may only be effected through a mandatory tender offer (MTO) which is made to all shareholders of the company. The Takeover Code does not recognise any concept of a direct block transfer/sale of shares and instead requires that the MTO is made to all the shareholders so they can acquire shares on a pro rata basis, and so that if a buyer intends to acquire 51% of the shares in a bank held by a certain shareholder, it will need to make an offer to acquire a higher percentage of shares, in order to allow for a margin to cater for acceptances by shareholders other than the primary selling shareholder. Having noted the above, in a number of precedent deals in Oman, the CMA has provided exemptions to acquirers from the requirements of an MTO set out in the Takeover Code, and has also permitted acquirers to enter into direct bilateral deals of more than 25% shareholding.

Pursuant to CBO Circular BM 932, the CBO has prescribed a Code of Corporate Governance for Banking and Financial Institutions which sets out the principles of role, responsibility and accountability of the board of directors and senior management of licensed banks operating in Oman. In the case of a branch of a foreign bank operating in Oman, such branch would not have a board of directors and accordingly, the provisions relating to boards of directors would not be applicable, although the provisions relating to the CEO/manager will be applicable.

In addition to the above, all public listed companies are required to comply with the Code of Corporate Governance for Listed Companies (CMA Decision 27/2021), which is a comprehensive code on corporate governance. The Code is binding on all public listed companies and, as locally incorporated banks operating in Oman are public listed companies (with one exception), the CBO has specifically directed listed banks to comply with the provisions of this Code. In summary, the Code provides a legal framework and clarifies the principles for the management and control of listed companies and, inter alia, outlines the composition of the board and their committees, as well as the functions and powers attributed to them.

In accordance with Article 77 of the Banking Law, a licensed bank’s CEO and other senior management staff can only be employed by the bank if such appointment has been approved by the CBO, and the proposed personnel satisfy the CBO’s “fit and proper” criteria, outlined below.

“Fit and Proper” Criteria

CBO Circular BM 954 provides that the CBO requires licensed banks to ensure, before seeking the CBO’s approval for appointment of senior management members, that the proposed appointee meets the following “fit and proper” criteria:

• the person has not been convicted of any crime, unless cleared by a judicial authority;
• the person has not committed an offence involving fraud or other dishonesty or violence;
• the person has not acted in contravention of any statute of the Sultanate of Oman or abroad, or provisions thereof established for the purpose of protecting members of the public from financial loss due to dishonesty, incompetence or malpractice by the person concerned;
• the person has not been involved in any deceptive or oppressive practices (whether lawful or not) which would cast doubt on their integrity and that of the business; and
• the person has not been involved or associated with any other business practices, or otherwise conducted themselves in such a way as to cast doubt on their competence and soundness of judgement.

In addition to the above, licensed banks are required to look into the previous conduct and activities in business and financial matters of the proposed appointee and take into account other positions held by such person, as well as consider their financial solvency, qualifications, experience and expertise in the relevant position they are proposed for.

Other Documentation

The process of obtaining the CBO’s approval involves submitting the CBO’s prescribed application form along with the profile/CV of the proposed appointee together with supporting documentation (which includes undertakings from the bank as well as the proposed appointee regarding the appointee’s experience/qualifications etc). In the case of the incorporation of a new bank, the appointment applications must be submitted to the CBO at the same time as the banking licence application. In all subsequent cases, applications are submitted as and when a vacancy arises which has to be filled.

The CBO has the discretion to reject any proposed appointee or to displace any director, executive officer, general manager or deputy general manager by passing a direction in the interests of depositors and customers of the bank.

Omanisation Targets

Furthermore, in accordance with CBO Circular BM 1105, banks are also required to achieve and maintain the following Omanisation targets in each cadre of staff in addition to achieving the overall Omanisation target of 90%:

• senior/top management – 80%;
• middle management – 90%; and
• clerical/non-clerical staff – 100%.

Through Circular BM 1135, the CBO has issued instructions to all banks operating in Oman to comply with the “Sound Compensation Principles and Standards” regarding the reward/compensation of senior management issued by the Financial Stability Board (FSB). The Circular provides that in order to protect the financial stability of banks, to avoid losses likely to arise from giving excessive rewards to senior management, and to streamline the applicable processes, it is necessary for banks to strike a balance between risks and rewards. All banks are required to have a remuneration committee of the board of directors in order to decide on the remuneration of senior management in line with the FSB’s “Sound Compensation Principles and Standards”, without the need for the CBO’s involvement.

With respect to branches of foreign banks, the circular states that foreign banks should review their policies/practices as required, however it does not provide any other guidance.

It is also important to note the various limitations on remuneration payable to directors of listed companies (given that the majority of banks operating in Oman are listed companies). Article 129 of the CMA’s Executive Regulations for Listed Companies (MD 27/2021) (the “SAOG Regulations”) stipulate that the sitting fees of directors and subcommittees are to be approved at the company’s ordinary annual general meeting provided that the sitting fees are not more than OMR10,000 for each director per annum.

With regards to directors’ remuneration, this can only be paid from the net profits of the company after the deduction of taxes, legal and optional reserves, and the funds allocated from the profits for capitalisation and dividends. Directors’ remuneration should also be approved by the ordinary general meeting, provided that:

• it shall not exceed OMR300,000 for a company that realised net profits equal to or exceeding the profits realised in the previous financial year, where the company has no accumulated losses or losses in the capital; or
• it shall not exceed OMR150,000 for a company that realised net profits less than the profits realised in the previous financial year, where the company has no losses in the capital.

The cornerstone legislation governing AML/CFT in Oman is the Anti-Money Laundering and Combating Terrorism Financing Law (Royal Decree 30/2016) (“AML/CFT Law”). The AML/CFT Law and the Executive Regulations of the AML/CFT Law (“AML Executive Regulations”) seek to counter money laundering and the financing of terrorism activities in Oman.

The AML/CFT Law applies to banks/financial institutions, non-financial businesses and professions and non-profit associations. Banks are obliged to retain records, documents, information and data relating to the identity of actual clients and beneficiaries and their activities and transaction records in a way that facilitates retrieval upon request in accordance with the provisions of the AML/CFT Law for a period of ten years commencing from the date of (i) conducting or initiating the transaction, or (ii) expiry of the business relationship, or (iii) completion of the transaction, of a customer with whom it has no business relationship.

Upon request, a bank will provide these records and documents to the judicial authorities, the National Financial Information Centre and other regulatory bodies (including the CBO). Banks may keep authenticated copies of these records, documents, information and data. Under the AML/CFT Law, banks are obliged to notify the National Financial Information Centre immediately in the event of any suspicion, or existence of reasonable grounds for suspicion, that any funds routed through the bank relate to the proceeds of crime, money laundering or terrorism financing (“Proceeds of a Crime”). The AML Executive Regulations specify the records, documents, information and data that must be retained.

The AML/CFT Law and Executive Regulations set out a number of obligations regarding checks that a “covered institution” is required to undertake, namely:

• correctly identifying the relevant counterparties, clients and beneficiaries to a transaction;
• determining whether a client or beneficial owner is a politically exposed person (PEP) and carrying out further due diligence for PEPs; and
• undertaking further due diligence in respect of any party for whom it opens a bank account.

Banks are not permitted to open anonymous accounts or accounts under assumed or fictitious names or numbers or codes and are not permitted to provide any services to such accounts. Banks are required to undertake the necessary due diligence to identify their clients, using reliable and independent sources, documents, data and information in the following cases:

• before establishing a business relationship;
• before carrying out a transaction for a customer with whom the bank does not have an established business relationship;
• before executing a wire transfer for a customer with whom the bank does not have an established business relationship;
• when there is suspicion of a crime of money laundering or terrorism financing; and
• when there are doubts concerning the accuracy or adequacy of information and/or documentation received from the potential and/or existing customer.

It is also important to monitor all existing relationships and client transactions on an ongoing basis to ensure that information regarding such relationships is consistent with the client due diligence information held on file for that client.

The Bank Deposit Insurance Scheme (BDIS)

The Bank Deposit Insurance Scheme (BDIS) is a rule-based scheme where the CBO allows the private/banking sector to take most of the responsibility for deposits through an independent deposit insurance system. It was set up through a Royal Decree in 1995 (as amended in 2000 and 2010), with the primary objective of providing comprehensive insurance cover on specified deposits with the banks operating in Oman. The BDIS was intended to be one of the key elements in maintaining confidence in the banking system and promoting financial stability. It is an integral part of the financial safety net, providing certain risk coverage for depositors, prompting savings and confidence in the banking sector.

Funding

Initial contributions of OMR5 million each from the CBO and the member banks collectively provided the base capital for the BDIS at its inception. Premiums are collected on an ex ante basis from member banks and the CBO. An annual premium of 0.05% of the total value of deposits at the end of each financial year is collected from all member banks. The CBO contributes half of the total premiums paid by member banks each year in accordance with Regulation BM/REG/39/5/95. Initially, the premium rate was 0.02% from 1995–2000 and 0.03% from 2001–2011. The premium rate was increased to 0.05% in 2012.

Management

It is mandatory for all licensed banks operating in Oman and receiving deposits to be a member of the BDIS. While the CBO’s Board of Governors is the authority in charge of regulating the BDIS, the BDIS is managed by an Administrative Committee which is responsible for managing the scheme’s operations. The CBO’s executive president appoints members of the Administrative Committee. The Administrative Committee consists of five members, of whom three are employees of CBO with a rank not lower than departmental manager, and the most senior of whom is appointed as chairperson. The other two members are appointed from among officials of the member banks.

Compensation

The current compensation amount for deposits is a maximum of OMR20,000, while deposits of OMR20,000 and less will be compensated in full. Deposits that are eligible under the BDIS include:

• savings deposits;
• current accounts;
• call deposits;
• time deposits;
• government deposits;
• trusts/pension/other funds’ deposits of a similar nature; and
• other deposits similar to the above that may be specified by the CBO.

Deposits that are not eligible under the BDIS include the following:

• inter-bank deposits;
• items under reconciliation;
• deposits of board members, senior executives, investment and credit managers in the member banks and their family members;
• deposits of external auditors, internal audit managers in the member banks and their family members;
• deposits of parent, subsidiary, associate and affiliate companies or those companies which are linked to or participate in member banks;
• deposits of persons whose identity cannot be ascertained; and
• deposits the CBO considers as illegally obtained or which relate to illicit/illegal matters.

Article 70 (b) of the Banking Law provides that banks, their directors, officers and employees are not permitted to disclose or reveal any client-related information, unless such disclosure is required pursuant to the laws of Oman or as instructed by the CBO. In such circumstances, the licensed bank must immediately notify the customer of the disclosure.

Article 70 (a) provides a similar restriction on all government agencies and other persons seeking or asking a bank to disclose any client information. If required by a government agency, the agency must submit its request to the CBO which may, at its discretion, direct the concerned bank to disclose the concerned client information to the requesting agency.

This requirement is understood to apply to any and all information in the possession of a bank that relates to or identifies the specific customer.

Except for disclosure based on the CBO’s instructions, customer information may only be disclosed with the customer’s consent. Any such customer consent may be granted by way of a general consent for the bank to disclose the customer’s information in the course of its business. It is a common practice for banks to obtain such general consent as part of the initial client on-boarding/account-opening forms and documentation.

While the Banking Law does not provide any specific penalty for breach of the obligations in Article 70, Article 14 of the Banking Law provides the CBO with wide-ranging powers and discretion to impose penalties on banks, which can include fines as well as the suspension/cancellation of a banking licence in more serious cases of regulatory breach.

Basel III Standards

The CBO has directed all banks to comply with the Basel III Standards and in this regard the CBO has issued a number of circulars and guidelines on adherence and compliance with the various requirements prescribed by the Basel III Standards.

For instance, Net Stable Funding Ratio (NSFR) was introduced by the Basel III framework. Through CBO Circular BM 1147 and the Basel III Net Funding Ratio Guidelines issued by the CBO, the CBO has directed all banks in Oman to comply with the NSFR disclosure requirements issued by CBO Circular BM 1147. The CBO’s Guidelines provide guidance on the NSFR with the objective of reducing funding risk over a longer time horizon by requiring banks to fund their activities with sufficiently stable sources of funding, in order to mitigate the risk of future funding stress. Section 2 of the Guidelines provides minimum requirements, definitions, etc. Section 3 discusses application issues for the NSFR, such as scope of application, implementation date, etc. The disclosure requirements for the NSFR are set out in Section 4 of the Guidelines, including a common template the banks must use to report their NSFR results and selected details of the NSFR components.

See the section on “Capital Requirements and Capital Buffers” below for more information regarding the capital requirements set out in the Basel III Standards.

Risk Management Rules

CBO Circular BM 955 requires all banks operating in Oman to comply with CBO’s Guidelines on Risk Management Systems. The Guidelines broadly cover management of credit, the market and operational risks. Due to diversity and the varying size of balance sheet items, it may not be possible or necessary for all banks to adopt uniform risk management systems. The design of a risk management framework is required to be oriented towards the bank’s own specific requirements, dictated by the size and complexity of its business, risk philosophy, market perception and the existing level of capital. The Guidelines are purported to serve as a benchmark for banks, which are yet to establish integrated risk management systems. Banks are permitted to develop their own systems compatible with the type and size of their operations as well as their risk perception.

Capital Requirements and Capital Buffers

Through CBO Circular BM 1114 the CBO has directed all banks to comply with CP-1 Guidelines on Regulatory Capital Under Basel III and CP-2 Guidelines on the Composition of Capital Disclosure Requirements. Banks are required to implement the capital adequacy framework under Basel III. The Basel III framework is applicable to all banks at consolidated bank level as well as at standalone level.

Multinational banks are required to follow the more stringent of the regulations between those of the home jurisdiction and the host jurisdiction. Banks are required to ensure a total capital adequacy ratio of 12% of risk-weighted assets. Of this, Common Equity Tier 1 capital should be maintained at a minimum level of 7% and Tier 1 capital at a minimum of 9% of risk-weighted assets. A capital conservation buffer of 2.5% of risk-weighted assets, comprised of Common Equity Tier 1 will be in addition to the minimum Total Capital Adequacy ratio. The countercyclical buffer, if required, will be at a maximum level of 2.5%.

Furthermore, through CBO Circular BM 1140, the CBO has directed all banks in Oman to comply with the Concept Paper on Capital Buffer Requirements under Basel III, issued by the CBO. The Concept Paper provides, inter alia, a capital conservation range table (including a countercyclical buffer), instructions on release of the buffer, treatment of surplus when the buffer returns to zero, calculation of the buffer requirement, calibration of thresholds, performance of variables for signalling release of the buffer, etc.

Liquidity Requirements

Pursuant to CBO Circular BM 1127, the CBO has directed all banks in Oman to comply with the framework on Liquidity Coverage Ratio (LCR) and LCR disclosure standards. The standard LCR became effective from 1 January 2015, with a minimum ratio of 60% increasing by 10% every year until it reached a minimum of 100% in 2019. The LCR is still understood to be at 100%.

The objective of the LCR is to promote the short-term resilience of a licensed bank’s liquidity risk profile by ensuring that it has sufficient high-quality liquid assets (HQLA) to survive a significant stress scenario lasting for 30 days.

The CBO has issued the Bank Resolution Framework (BRF), which is part of the overall regulatory and supervisory architecture of the CBO and which has the aim of preventing a bank from reaching a phase of failure or resolution in the first instance. The BRF charts out prompt corrective actions to be taken by a bank if the capital conservation buffers are drawn down, or if there are weaknesses in liquidity, asset quality or other aspects of operation. The BRF further provides a mechanism for an institution-initiated recovery plan if the bank hits certain thresholds. Lastly, if the recovery plan fails, the BRF provides a resolution toolkit for the orderly exit of the bank, with the aim of avoiding excessive market disruption and ideally avoiding the need for any capital support from the government (other than in its capacity as a shareholder), all while at the same time preserving critical functions once it is clear that the institution is no longer viable.

The BRF has been prepared in line with the Financial Stability Board (FSB) Key Attributes of Effective Resolution Regime, which is a global standard in respect of bank recovery/resolution processes.

Pursuant to the Banking Law, the CBO is the resolution authority for all banks in Oman and it retains the power to adopt and implement any resolution measures in respect of banks licensed by it. A resolution event may be triggered if:

• in the CBO’s assessment, the institution is no longer viable or is likely to be no longer viable;
• in the CBO’s assessment, no action(s) other than resolution measures can be taken within a reasonable time, either by the institution or the CBO, to preserve the institution or its financial stability; or
• a resolution measure is necessary to preserve financial stability and safeguard the public interest.

A resolution event may also be triggered due to any systemic event which requires immediate action by the CBO. Such events could include circumstances where a bank or group of banks is unable to provide the products or services that they have contractually undertaken to provide, or if there is an actual or perceived loss of confidence in the ability of one or more banks or the financial system to continue to provide financial products or services (to an extent that could have a substantial adverse effect on the financial system and economic activity in Oman, irrespective of the event or circumstance occurring or arising inside or outside of Oman).

Article 9 of the BRF provides that the general principle to be applied in any resolution process is that “no creditor will be left worse off” than they would have been under the usual insolvency/liquidation regime.

The BRF, read with Article 87 of the Banking Law, provides that in the event of a resolution process, priority of payments will be as follows:

• monthly salaries not paid in a range of three months or OMR1,000, whichever of the two is less, in addition to the claims of staff related to their other unpaid entitlements;
• the following claims by the BDIS Fund, in its capacity as the guarantor of such deposits:
1. net amount payable to depositors as fixed by the BDIS Law;
2. instalments payable to the BDIS Fund;
3. loans and credits; and
4. any other dues payable to the BDIS Fund in accordance with the law;
• claims of the CBO other than any specific claims which are provided by law to have priority; and
• claims of other creditors of the bank under liquidation, including the entitlements of the depositors not covered by the BDIS Law.

New Executive Regulations of the Securities Law

Regulatory reforms are expected in the areas of capital markets and banking, with new laws and regulations governing banking, sovereign debt and capital markets expected to come out in 2024. At this point in time, the most anticipated regulations would be the new executive regulations of the Securities Law, which are expected to replace the current prevailing regulations issued under the now-repealed Capital Market Law. The new executive regulations of the Securities Law are expected to address, among other things, the specific activities or persons that do (or do not) require regulatory licences from the CMA, as well as those activities that CMA-licensed entities are prohibited from conducting. Given that most banks in Oman also undertake and provide various services in the field of securities, the executive regulations of the Securities Law are expected to be a major regulatory development for banks, once the said regulations are issued.

New Bonds and Sukuk Regulations

In terms of other regulatory developments, in July 2021 the CMA circulated a preliminary draft of the new bonds and sukuk regulations to market players and financial and legal service providers for their feedback, prior to issuance of the final version. It is expected that the new regulations will focus on building up the regulatory infrastructure of the financial sector to cope with the current requirements of the Omani market through diversification of investment and financing instruments. The regulations are also anticipated to be aligned with the objectives of Oman’s Vision 2040. According to the CMA, the key strategic objectives of issuing the new regulations will be to help enable flexible and convenient financing arrangements (both conventional and Islamic), in line with prevailing global norms.

Islamic Liquidity Management Instrument (ILMI)

There were also structural improvements in the Islamic banking sector in 2022 after the CBO introduced an Islamic liquidity management instrument (ILMI) in the form of a wakala money market instrument. This instrument allows Islamic banks and windows to place remunerative deposits with the CBO for a minimum duration of one day to a maximum of three months. In the past, the absence of any ILMIs was a challenge for Islamic banks in Oman, as Islamic banks and windows have been unable to invest their excess liquidity or to have a Sharia alternative to treasury bills, which are available to conventional banks. Sharia rules and regulations prevent Islamic banks and windows from depositing funds and investing with conventional banks, which limits the options available to Islamic banks and windows. The CBO is expected to introduce more ILMIs for Islamic banks and windows in phases, both for providing liquidity support to Islamic banking entities and to absorb excess liquidity. This is expected to help the Islamic banking sector grow further in the Omani market.

MoU with the Oman Environmental Services Holding Company

Furthermore, in March 2022 the CBO signed a memorandum of understanding with the Oman Environmental Services Holding Company (be'ah) for co-operation and exchange of expertise in the field of sustainability and the circular economy. The MoU also envisaged co-operation in the field of green finance, and investments in environmental, social and governance fields (ESGs) with a view to supporting financial technology (fintech)-focused SMEs through platforms such as be'ah’s hosted “Eco-Innovate Oman” as well as other related matters in the circular economy. It is expected that the CBO will introduce its own ESG regulations/guidelines for banks operating in Oman (also see 11.1 ESG Requirements).

As of the date of this Practice Guide the CBO has not issued any regulatory requirements or guidelines in relation to ESG. However, the MSX recently issued its environmental, social and governance (ESG) guidelines (the “ESG Guidelines”). These ESG Guidelines are applicable to all listed companies and therefore apply to the majority of banks operating in Oman. The ESG Guidelines align with the Gulf Cooperation Council’s GCC ESG Disclosure Metrics for listed companies published in 2022.

The ESG Guidelines encourage listed companies to voluntarily report on their ESG performance and compliance in 2024 for all ESG-related activities undertaken in 2023. Reporting will be mandatory for all listed companies from the year 2025 onwards, with the mandatory reports to be filed by 31 March 2025 at the latest (for activities undertaken in 2024).

As per the ESG Guidelines, the business case for ESG reporting includes several factors, such as meeting investor demands, achieving operational improvements, complying with an evolving regulatory environment, enhancing financial performance, improving reputation, and effective risk management.

The ESG Guidelines provide 30 measures to assess a listed company’s impact on environmental sustainability, social responsibility and governance matters. These measures include matters such as board diversity, labour practices, carbon emissions, etc.

From 2025 onwards, listed companies will be required to publish standalone ESG reports according to the Global Reporting Initiative (GRI) Universal Standards. These reports will be required to document changes in any performance measures, such as diversity at various institutional levels, etc.